**SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549**

** **

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** **

**FORM 10-KSB**

 

| **(Mark One)** |   |                                                                                     |
|----------------|--------|------------------------------------------------------------------------------------------|
| **ý**     |   | **Annual  report under Section 13 or 15(d) of the Securities Exchange Act of 1934.**     |
|           |   |                                                                                     |
|           |   | **For the fiscal year ended December 31, 2002**                                          |
|           |   |                                                                                     |
| **OR**         |
|           |   |                                                                                     |
| **o**          |   | **Transition  report under Section 13 or 15(d) of the Securities Exchange Act of 1934.** |

 

**Commission File No.: 000-49882**

 

**MINDEN BANCORP, INC**

(Name of Small Business Issuer in ItsCharter)

 

| **United States**                                               |   | **13-4203146**                           |
|-----------------------------------------------------------------|--------|------------------------------------------|
| (State or Other Jurisdiction of  Incorporation or Organization) |   | (I.R.S. Employer  Identification Number) |
|                                                            |   |                                     |
| **415 Main Street, Minden, Louisiana**                          |   | **71058**                                |
| (Address of Principal Executive Offices)                        |   | (Zip Code)                               |
|                                                            |   |                                     |
| **(318) 377-0523**                                              |
| (Issuer’s Telephone Number, Including Area  Code)          |
|                                                            |   |                                     |
| Securities registered under Section 12(b)  of the Exchange Act: |
| **Not Applicable**                                              |
|                                                            |   |                                     |
| Securities registered under Section 12(g)  of the Exchange Act: |
|                                                            |
| **Common Stock (par value $.01 per share)**                     |
| (Title of Class)                                                |

 

Check whether the issuer: (1) filed all reports required to be filed bySection 13 or 15(d) of the Exchange Act during the past 12 months (or for suchshorter period that the Registrant was required to file such reports), and (2)has been subject to such filing requirements for the past 90days.   Yes ý   No o

 

Check if disclosure of delinquent filers in response to Item 405 ofRegulation S-B is not contained in this form, and no disclosure will becontained, to the best of Registrant’s knowledge, in definitive proxy orinformation statements incorporated by reference in Part III of this Form10-KSB or any amendment to this Form 10-KSB.   ý

 

Issuer’s revenues for its most recent fiscal year: $4,681,000.

 

As of March 13, 2003, the aggregate value of the 1,226,656 shares ofCommon Stock of the Registrant issued and outstanding on such date, whichexcludes 175,723 shares held by all directors and executives officers of theRegistrant and the Registrant’s Employee Stock Ownership Plan (“ESOP”) as agroup, was approximately $16.25 million. This figure is based on the closing sales price of $13.25 per share ofthe Registrant’s Common Stock on March 13, 2003.  Although directors and executive officers and the ESOP wereassumed to be “affiliates” of the Registrant for purposes of this calculation,the classification is not to be interpreted as an admission of such status.

 

Number of shares of Common Stock outstanding as of March 13, 2003:1,454,750

Transitional Small Business Disclosure Format:  Yes o    No ý

 

**DOCUMENTS INCORPORATED BY REFERENCE**

 

List hereunder the following documentsincorporated by reference and the Part of the Form 10-KSB into which thedocument is incorporated.

 

(1)                                  Portionsof the Annual Report to Stockholders are incorporated into Part II, Items 5through 7 and Part III, Item 13 of this Form 10-KSB.

 

(2)                                  Portionsof the definitive proxy statement for the 2003 Annual Meeting of Stockholdersare incorporated into Part III, Items 9 through 12 of this Form 10-KSB.

 

 

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**PART I**

 

**Item 1. Description of Business.**

 

**General**

 

On December 11, 2001, theBoard of Directors of Minden Building and Loan Association, a Louisianachartered building and loan association (the “Association”), adopted a plan ofreorganization pursuant to which the Association converted to stock form andbecame a wholly owned subsidiary of Minden Bancorp, Inc. (the “Company”).  In connection with the reorganization, theCompany became a majority owned (55%) subsidiary of Minden Mutual HoldingCompany (the “MHC”).  The reorganizationwas consummated on July 2, 2002.  TheCompany is a unitary savings and loan holding company whose assets consistprimarily of the ownership of the outstanding capital stock of the Association,investments of proceeds retained from the reorganization and the Company’s loanto the employee stock ownership plan.

 

The management of the Company, the MHC andthe Association are substantially identical and  the Company neither owns nor leases any property but instead usesthe premises, equipment and furniture of the Association with the payment ofappropriate rental fees, as required by applicable law and regulations.

 

The Association is a Louisiana-charteredsavings and loan association that was originally organized in 1910.  The Association’s business consistsprimarily of attracting deposits from the general public and using those fundsto make loans.  The Association operatesout of its main office located in Minden, Louisiana.

 

**Lending Activities**

 

**General.**  At December 31, 2002, the net loan portfolioof the Association totaled $52.3 million, representing approximately 65.8% ofits total assets at that date.  Theprincipal lending activity of the Association is the origination of one-to-four-family residential loans.  AtDecember 31, 2002, one- to-four-family residential loans amounted to $36.96million, or 68.26% of its total loan portfolio, before net items.  As part of the Association’s lendingstrategy of diversifying its loan portfolio, the Association also offers thefollowing lending products:

 

•                                          commercialreal estate loans, which amounted to 10.69% of the total loan portfolio atDecember 31, 2002;

•                                          consumerloans, which amounted to 5.98% of the total loan portfolio at December 31,2002;

•                                          commercialbusiness loans, which amounted to 10.93% of the total loan portfolio atDecember 31, 2002; and

•                                          constructionloans, which amounted to 4.14% of the total loan portfolio at December 31,2002.

 

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The types of loans that the Association mayoriginate are subject to federal and state laws and regulations. Interest ratescharged on loans are affected principally by the demand for such loans and thesupply of money available for lending purposes and the rates offered by itscompetitors. These factors are, in turn, affected by general and economicconditions, the monetary policy of the federal government, including theFederal Reserve Board, legislative and tax policies, and governmental budgetarymatters.

 

A savings institution generally may not makeloans to one borrower and related entities in an amount which exceeds thegreater of (i) 15% of its unimpaired capital and surplus, although loansin an amount equal to an additional 10% of unimpaired capital and surplus maybe made to a borrower if the loans are fully secured by readily marketablesecurities, and (ii) $500,000.  AtDecember 31, 2002, the Association’s regulatory limit on loans-to-one borrowerwas $2.8 million and its five largest loans or groups of loans-to-one borrower,including related entities, aggregated $1.4 million, $912,000, $877,000,$547,000 and $541,000.  Each of theAssociation’s five largest loans or groups of loans was performing inaccordance with its terms at December 31, 2002.

 

**Loan Portfolio Composition. **The following tablesets forth the composition of the Association’s loan portfolio by type of loanat the dates indicated.

 
|                               |   | **December 31,**           |   |
|------------------------------------|--------|----------------------------|--------|
|                               |   | **2002**                   |   | **2001** |   |
|                               |   | **Amount**                 |   | **Percent** |   | **Amount** |   | **Percent** |   |
|                               |   | **(Dollars in Thousands)** |   |
| Real  estate loans:                |   |                       |   |   |   |   |   |   |   |
| One-  to four-family               |   | $                          | 36,959 |   | 68.26 | % | $ | 34,434 |   | 80.96 | % |
| Commercial                         |   | 5,786                      |   | 10.69 |   | 3,251 |   | 7.65 |   |
| Construction                       |   | 2,245                      |   | 4.14 |   | 1,111 |   | 2.61 |   |
| Commercial  business               |   | 5,917                      |   | 10.93 |   | 807 |   | 1.90 |   |
| Consumer:                          |   | 919                        |   | 1.70 |   | 1,081 |   | 2.54 |   |
| Loans  secured by savings accounts |   |                       |   |   |   |   |   |   |   |
| Other(1)                           |   | 2,317                      |   | 4.28 |   | 1,847 |   | 4.34 |   |
| Total  loans receivable            |   | 54,143                     |   | 100.00 | % | 42,531 |   | 100.00 | % |
|                               |   |                       |   |   |   |   |   |   |   |
| Less:                              |   |                       |   |   |   |   |   |   |   |
| Undisbursed  loans in process      |   | (899                       | )      |   |   | 432 |   |   |   |
| Deferred  loan fees                |   | —                     |   |   |   | — |   |   |   |
| Allowance  for loan losses         |   | (907                       | )      |   |   | 911 |   |   |   |
| Total  loans receivable, net       |   | $                          | 52,337 |   |   |   | $ | 41,188 |   |   |   |

 

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(1)                                  Includes automobileand home equity loans.

 

**Origination of Loans.**  The lending activities of the Associationare subject to the written underwriting standards and loan originationprocedures established by the board of directors and management. Loanoriginations are obtained through a variety of sources, primarily consisting of

 

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referrals from real estate brokers and existing customers. Written loanapplications are taken by one of the Association’s loan officers. The loanofficer also supervises the procurement of credit reports, appraisals and otherdocumentation involved with a loan. For real estate loans in excess of  $250,000, the Association’s loan policymandates that property valuations be performed by an independent outsideappraiser approved by its board of directors. As a matter of practice, however, the Association obtains independentoutside appraisals on substantially all of its loans.  Under the lending policy of the Association, a title opinion mustbe obtained for each real estate loan.

 

The Association’s loan approval process isintended to assess the borrower’s ability to repay the loan, the viability ofthe loan and the adequacy of the value of the property that will secure theloan.  Generally, loans in excess of$50,000 must be approved by the Association’s loan committee or board ofdirectors.  All loans are ratified bythe board of directors.

 

The following table shows total loansoriginated, sold and repaid during the periods indicated.

 
|                                |   | **Year Ended  December 31,** |    |
|-------------------------------------|--------|------------------------------|---------|
|                                |   | **2002**                     |    | **2001** |   |
|                                |   | **(In Thousands)**           |    |
| **Loan originations:**              |   |                         |    |   |   |
| Real estate loans:                  |   |                         |    |   |   |
| One-to four-family                  |   | $                            | 11,211  |   | $ | 16,563 |   |
| Commercial                          |   | 3,639                        |    | 1,758 |   |
| Construction                        |   | 2,561                        |    | 1,607 |   |
| Commercial business                 |   | 9,189                        |    | 1,274 |   |
| Consumer(1)                         |   | 3,712                        |    | 3,178 |   |
| Total loans originated              |   | 30,312                       |    | 24,380 |   |
| Deduct loan principal reductions    |   | 18,611                       |    | 6,447 |   |
| Decrease due to other items, net(2) |   | (522                         | )  | (6,276 | ) |
|                                |   |                         |    |   |   |
| Net increase in loan portfolio      |   | $                            | 11,149  |   | $ | 11,657 |   |

 

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(1)                                  Includes loans secured by deposits,automobiles loans and home equity loans.

(2)                                  Other items consist of loans in process,deferred fees, unearned interest and allowance for loan losses.

 

Although Louisiana laws and regulationspermit savings institutions to originate and purchase loans secured by realestate located throughout the United States, the Association concentrates itslending activity to its primary market area in Webster Parish, Louisiana andthe surrounding area.  Subject to itsloans-to-one borrower limitation, the Association is permitted to invest withoutlimitation in residential mortgage loans and up to 400% of its capital in loanssecured by non-residential or commercial real estate.  The Association also may invest in secured and unsecured consumerloans in an amount not exceeding 35% of total assets.  This 35% limitation may be exceeded for certain types of consumerloans, such as home equity and property improvement loans secured byresidential real property.  In addition,the Association may invest up to 10% of its 

 

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total assets in secured and unsecured loans for commercial, corporate,business or agricultural purposes. At December 31, 2002, the Association waswithin each of the above lending limits.

 

**Maturity of Loan Portfolio.**  The following table presents certaininformation at December 31, 2002, regarding the dollar amount of loans maturingin the Association’s portfolio based on their contractual terms to maturity orscheduled amortization, but does not include potential prepayments.  Demand loans, loans having no statedschedule of repayments and no stated maturity, and overdrafts are reported asbecoming due within one year.  Loanbalances do not include undisbursed loan proceeds, net deferred loanorigination costs and allowance for loan losses.

 
|                              |   | **At December 31, 2002**       |   |
|-----------------------------------|--------|--------------------------------|--------|
|                              |   | **One- to-four********Family** |   | **Commercial  Real Estate** |   | **Construction** |   | **Consumer** |   | **Commercial  Business** |   | **Total********Loans** |   |
|                              |   | **(In Thousands)**             |   |
|                              |   |                           |   |   |   |   |   |   |   |   |   |   |   |
| **Amounts due in:**               |   |                           |   |   |   |   |   |   |   |   |   |   |   |
| One  year or less                 |   | $                              | 744    |   | $ | 944 |   | $ | 2,245 |   | $ | 1,164 |   | $ | 1,834 |   | $ | 6,981 |   |
| More  than one year to five years |   | 2,408                          |   | 1,542 |   | — |   | 1,851 |   | 3,915 |   | 9,716 |   |
| More  than five years             |   | 33,807                         |   | 3,250 |   | — |   | 221 |   | 168 |   | 37,446 |   |
| Total  amount due                 |   | $                              | 36,959 |   | $ | 5,786 |   | $ | 2,245 |   | $ | 3,236 |   | $ | 5,917 |   | $ | 54,143 |   |

 

The following table sets forth the dollaramount of all loans, before net items, due after December 31, 2002 which havefixed interest rates or which have floating or adjustable interest rates.

 
|                |   | **Fixed-Rates**     |   | **Floating or  Adjustable Rates** |   | **Total** |   |
|---------------------|--------|---------------------|--------|-----------------------------------|--------|-----------|--------|
|                |   | **(In  Thousands)** |   |
| Real estate loans:  |   |                |   |                              |   |      |   |
| One-to-four family  |   | $                   | 36,408 |                              | $      | 551       |   | $ | 36,959 |   |
| Commercial          |   | 4,762               |   | 1,024                             |   | 5,786     |   |
| Construction        |   | 1,830               |   | 415                               |   | 2,245     |   |
| Commercial business |   | 1,833               |   | 4,084                             |   | 5,917     |   |
| Consumer loans      |   | 3,189               |   | 47                                |   | 3,236     |   |
| Total loans         |   | $                   | 48,022 |                              | $      | 6,121     |   | $ | 54,143 |   |

 

Scheduled contractual maturities of loans donot necessarily reflect the actual expected term of the loan portfolio. Theaverage life of mortgage loans is substantially less than their averagecontractual terms because of prepayments. The average life of mortgage loanstends to increase when current mortgage loan rates are higher than rates onexisting mortgage loans and, conversely, decrease when rates on currentmortgage loans are lower than existing mortgage loan rates (due to refinancingof adjustable-rate and fixed-rate loans at lower rates). Under the lattercircumstance, the weighted average yield on loans decreases as higher yieldingloans are repaid or refinanced at lower rates.

 

**One- to Four-Family Residential Real EstateLoans.**  Theprimary lending activity of the Association is the origination of loans securedby single-family residences. At December 31, 2002,

 

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$36.96 million, or 68.26%, ofits total loan portfolio, before net items, consisted of one- to four-familyresidential loans.

 

The loan-to-value ratio, maturity and otherprovisions of the loans made by the Association generally have reflected thepolicy of making less than the maximum loan permissible under applicableregulations, in accordance with sound lending practices, market conditions andunderwriting standards established by the Association.  The Association’s current lending policy onone- to four-family residential loans generally limits the maximumloan-to-value ratio to 90% of the appraised value of the property.  These loans are amortized on a monthly basiswith principal and interest due each month and generally include “due-on-sale” clauses.

 

Substantially all of the Association’s one-to four-family residential loans have fixed rates of interest. Fixed-rate loansgenerally have maturities ranging from 15 to 30 years and are fully amortizingwith monthly loan payments sufficient to repay the total amount of the loanwith interest by the end of the loan term. Although it has been the Association’s practice to retain all of theone- to four-family residential loans, its fixed-rate loans  generally are originated under terms,conditions and documentation which permit them to be sold to U.S.Government-sponsored agencies, such as the Federal Home Loan MortgageCorporation, and other investors in the secondary mortgage market.  At December 31, 2002, $36.4 million, or98.51%, of the Association’s one- to four-family residential mortgage loanswere fixed-rate loans.

 

Of the $36.96 million of one- to four-familyresidential loans held by the Association at December 31, 2002, $901,000consisted of second mortgage loans. These loans are secured by the underlying equity in the borrower’sresidence.  The Association holds thefirst mortgage on virtually all of the properties that secure its secondmortgage loans. The amount of the Association’s second mortgage loans generallycannot exceed the lesser of a loan-to-value ratio of 90% or $100,000.  These loans are typically three-to-five yearballoon loans with fixed rates and contain an on-demand clause that allows theAssociation to call the loan in at any time.

 

**CommercialReal Estate Loans.** The Association began toemphasize the origination of commercial real estate loans in 2001 as part ofits strategy to diversify its loan portfolio. In order to implement its lending strategy of serving commercial realestate customers, the Association hired an experienced senior loan officer andestablished prudent procedures for originating commercial real estateloans.  Commercial real estate loansgenerally have interest rates that are higher than interest rates on one- tofour-family residential loans because they usually involve a higher degree ofrisk than loans secured by residential property.  The Association’s commercial real estate loans consist primarilyof loans secured by land, storefront retail and office buildings, churches andschools.  Substantially all of theAssociation’s commercial real estate loans were secured by properties locatedwithin its market area.  At December 31,2002, the Association’s commercial real estate loans amount to $5.79 million,or 10.69% of its total loan portfolio, before net items, compared to $3.3million, or 7.7% of its total loan portfolio at December 31, 2001.

 

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** **

The Association’s commercialreal estate loans have a maximum loan-to-value ratio of 80%.  The terms of each commercial real estateloan are negotiated on a case-by-case basis, although these loans are generallystructured as three-to-five year balloon loans with either fixed rates orvariable rates tied to the prime rate with a 10- to 15-year amortizationschedule.  In determining whether tomake a commercial real estate loan, the Association considers the net operatingincome of the property, the borrower’s expertise, credit history andprofitability and the value of the underlying property.  The Association has generally required thatthe properties securing these commercial real estate loans have debt servicecoverage ratios (the ratio of earnings before debt service to debt service) of1.2x.  The Association requires writtenappraisals prepared by a certified independent appraiser of all propertiessecuring commercial real estate loans greater than $250,000.  At December 31, 2002, the average balance ofthe loans in the Association’s commercial real estate portfolio wasapproximately $109,000 and its largest commercial real estate loan at such datewas $547,000.  This loan was current atDecember 31, 2002.

 

The land loans in theAssociation’s commercial real estate loan portfolio are secured primarily byincome producing properties, such as land utilized for growing timber.  A small percentage of the land loans are fordevelopment of residential property. The Association’s land loans typically are three-to-five year balloonloans.  At December 31, 2002, theAssociation had $994,000 in land loans which loans had an average balance of$35,000.  The Association’s largest landloan at December 31, 2002 amounted to $126,000, which loan was current atDecember 31, 2002.

 

Commercial real estatelending is generally considered to involve a higher degree of risk than one- tofour-family residential lending.  Suchlending typically involves large loan balances concentrated in a singleborrower or groups of related borrowers for rental or business properties.  In addition, the payment experience on loanssecured by income-producing properties is typically dependent on the success ofthe operation of the related project and thus is typically affected by adverseconditions in the real estate market and in the economy.  The Association generally attempts tomitigate the risks associated with its commercial real estate lending by, amongother things, lending primarily to established businesses in its market areawith existing operating performance which can be analyzed,  requiring conservative debt coverage ratios,obtaining personal guarantees from the principals of the borrower andperiodically monitoring the operation and physical condition of the collateral.

 

**CommercialBusiness Loans. **The Association originates commercialbusiness loans primarily to small business owners in its market area forpurposes of working capital or equipment financing.  These loans are typically secured by equipment, machinery andother corporate assets.  The commercialbusiness loans are usually three-to-five year loans with either fixed rates orvariable rates of interest tied to the prime rate.  During 2002, the Association continued to expand its activitiesin the commercial business lending market with originations totalling $9.2million compared to only $1.3 million in 2001. The 2002 origination total was the second highest for the Associationbehind only its $11.2 million of one-to-four family real estate loans.  At December 31,

 

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2002, the Association’scommercial business loans amounted to $5.9 million, or 10.93%, of its totalloan portfolio compared to $807,000, or 1.9% of its loan portfolio at December31, 2001.

 

Commercial business loansgenerally are considered to involve a greater risk than single-familyresidential mortgage loans.  TheAssociation attempts to minimize its risk exposure by limiting these loans toproven businesses and by obtaining personal guarantees from the principals ofthe borrower.

 

**ConsumerLoans.**  The Association is authorized to make loansfor a wide variety of personal or consumer purposes.  The Association originates consumer loans in order to accommodateits customers and because such loans generally have shorter terms and higherinterest rates than residential mortgage loans.  The consumer loans offered by the Association consist of loanssecured by deposit accounts with the Association, automobile loans,recreational vehicle loans, boat loans and other miscellaneous loans. As partof its lending strategy, the Association began to emphasize the origination ofconsumer loans in 2001.  At December 31,2002, $3.2 million, or 5.98% of the Association’s total loan portfolioconsisted of consumer loans compared to $2.9 million, or 6.9% of its total loanportfolio, before net items, at December 31, 2001.

 

The Association offers loanssecured by deposit accounts in the Association, which loans amounted to$919,000, or 1.7% of the Association’s total loan portfolio, before net items,at December 31, 2002.  Such loans areoriginated for up to 90% of the account balance, with a hold placed on theaccount restricting the withdrawal of the account balance.  These loans typically are payable on demandwith a maturity date of one year.

 

The Association also offersloans for automobiles, primarily used, boats and recreational vehicles.  Such loans have terms of no more than 54months and a maximum loan-to-value ratio of 75%.  At December 31, 2002, the Association’s automobile, boat andrecreational vehicle loans amounted to $1.8 million, or 3.3% of its total loanportfolio, before net items.

 

Consumer loans generally haveshorter terms and higher interest rates than residential mortgage loans, butgenerally entail greater credit risk than residential mortgage loans,particularly those loans secured by assets that depreciate rapidly, such asautomobiles, boats and recreational vehicles. In such cases, repossessed collateral for a defaulted consumer loan maynot provide an adequate source of repayment for the outstanding loan and theremaining deficiency often does not warrant further substantial collectionefforts against the borrower.  Inparticular, amounts realizable on the sale of repossessed automobiles may besignificantly reduced based upon the condition of the automobiles and thefluctuating demand for used automobiles.

 

**ConstructionLoans. **The Association also originates loansfor the construction of one- to four-family residences.  At December 31, 2002, $2.2 million, or 4.15%of the Association’s total loan portfolio, before net items, consisted ofresidential construction loans.  TheAssociation’s construction loans are typically made for the construction ofpre-sold homes and typically are six-month fixed rate loans which require thepayment of interest only during the construction phase.

 

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Generally, the maximumloan-to-value ratio for these loans is 80%. Loans to borrowers acting as their own general contractor are made witha maximum loan-to-value ratio of 75%.

 

Before making a commitment tofund a construction loan, the Association requires an independent appraisal ofthe property.  The Association alsoreviews and inspects each property before disbursement of funds during the termof the construction loan.  The borroweris required to fund the difference between the loan amount and theestimated  cost of completion prior tothe Association disbursing any funds. Loan proceeds are disbursed after each stage of work is completed.

 

Construction lendinggenerally involves a higher degree of risk than one- to four-family permanentmortgage lending because of the greater potential for disagreements betweenborrowers and builders and the failure of builders to pay subcontractors.  Additional risk often exists because of theinherent difficulty in estimating both a property’s value upon completion ofconstruction and the estimated construction costs.  If the estimate of the value upon completion proves to beinaccurate, the Association may be confronted with a property whose value isinsufficient to assure full repayment.

 

**LoanOrigination and Other Fees.**  In addition to interestearned on loans, the Association generally receives loan origination fees or “points”for originating loans. Loan points are a percentage of the principal amount ofthe mortgage loan and are charged to the borrower in connection with theorigination of the loan.

 

**Asset Quality**

 

**General.** The Association’s collection procedures provide that when a loan is 15days past due, a late charge notice is sent to the borrower requestingpayment.  If the delinquency continuesat 30 days, personal contact efforts are attempted, either in person or bytelephone.  If a loan becomes 60 dayspast due and no progress has been made in resolving the delinquency, acollection letter from legal counsel is sent and personal contact isattempted.  When a loan continues in adelinquent status for 90 days or more, and a repayment schedule has not beenmade or kept by the borrower, generally a notice of intent to foreclose is sentto the borrower.  If the delinquency isnot cured, foreclosure proceedings are initiated.  In most cases, deficiencies are cured promptly.  While the Association generally prefers towork with borrowers to resolve such problems, the Association will instituteforeclosure or other collection proceedings when necessary to minimize any potentialloss.

 

Loans are placed on non-accrual status whenmanagement believes the probability of collection of interest is doubtful.  When a loan is placed on non-accrual status,previously accrued but unpaid interest is deducted from interest income.  The Association generally discontinues theaccrual of interest income when the loan becomes 90 days past due as toprincipal or interest unless the credit is well secured and the Associationbelieves it will fully collect.

 

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Real estate and other assetsacquired by the Association as a result of foreclosure or by deed-in-lieu offoreclosure are classified as real estate owned until sold. ** **TheAssociation had $35,000 and $59,000 of real estate owned at December 31,2002 and 2001, respectively.

 

**DelinquentLoans.**  The following table sets forth informationconcerning delinquent loans at December 31, 2002, in dollar amounts and as apercentage of the Association’s total loan portfolio.  The amounts presented represent the total outstanding principalbalances of the related loans, rather than the actual payment amounts which arepast due.

 
|                |   | **December 31, 2002**         |   |
|---------------------|--------|-------------------------------|--------|
|                |   | **30-59********Days Overdue** |   | **60-89  Days Overdue** |   | **90 or More Days********Overdue** |   |
|                |   | **Amount**                    |   | **Percent********of Total********Loans** |   | **Amount** |   | **Percent********of Total********Loans** |   | **Amount** |   | **Percent********of Total********Loans** |   |
|                |   | **(Dollars in Thousands)**    |   |
| Real estate loans:  |   |                          |   |   |   |   |   |   |   |   |   |   |   |
| One-to four-family  |   | $                             | 250    |   | 0.46 | % | $ | 5 |   | .01 | % | $ | 557 |   | 1.03 | % |
| Commercial          |   | 42                            |   | .08 |   | — |   | — |   | — |   | — |   |
| Construction        |   | —                        |   | — |   | — |   | — |   | — |   | — |   |
| Commercial business |   | 31                            |   | .06 |   | 58 |   | .11 |   | — |   | — |   |
| Consumer loans      |   | 37                            |   | .07 |   | 49 |   | .09 |   | 9 |   | .02 |   |
| Total loans         |   | $                             | 360    |   | .67 | % | $ | 112 |   | 0.21 | % | $ | 565 |   | 1.05 | % |

 

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**Non-PerformingAssets.**  The following table presents informationwith respect to the Association’s nonperforming assets at the dates indicated.

 
|                                                                                         |   | **At December 31,**        |   |
|----------------------------------------------------------------------------------------------|--------|----------------------------|--------|
|                                                                                         |   | **2002**                   |   | **2001** |   |
|                                                                                         |   | **(Dollars in Thousands)** |   |
| Nonaccruing loans:                                                                           |   |                       |   |   |   |
| Real estate loans:                                                                           |   |                       |   |   |   |
| One-to-four family                                                                           |   | $                          | — |   | $ | 35 |   |
| Commercial                                                                                   |   | —                     |   | — |   |
| Construction                                                                                 |   | —                     |   | — |   |
| Commercial business                                                                          |   | —                     |   | — |   |
| Consumer loans                                                                               |   | —                     |   | — |   |
| Total nonaccruing loans                                                                      |   | —                     |   | 35 |   |
| Accruing loans delinquent 90 days or  more(1)                                                |   | 557                        |   | 386 |   |
| Real estate owned(2)                                                                         |   | 35                         |   | 59 |   |
| Total nonperforming assets(3)                                                                |   | 592                        |   | 480 |   |
| Troubled debt restructurings                                                                 |   | 15                         |   | 20 |   |
| Troubled debt restructurings and  total nonperforming  assets                                |   | $                          | 607    |   | $ | 500 |   |
| Total nonperforming assets and  troubled debt restructurings as a percentage of total assets |   | 0.76                       | %      | 0.82 | % |

 

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(1)                                  Two mortgageloans on one residential property accounted for approximately $200,000 of thisamount at December 31, 2001 and $182,000 at December 31, 2002.

(2)                                  Real estateowned includes other repossessed assets.

(3)                                  Nonperformingassets consist of nonperforming loans and real estate owned.

 

If the $35,000 of nonaccruing loans of theAssociation had been current in accordance with their terms during 2001, thegross income on such loans would have been approximately $700.  No interest income was actually recorded bythe Association on such loans in 2001. There were no nonaccruing loans at December 31, 2002.

 

**ClassifiedAssets.**  Federal regulations require that eachinsured savings institution classify its assets on a regular basis. Inaddition, in connection with examinations of insured institutions, federalexaminers have authority to identify problem assets and, if appropriate,classify them. There are three classifications for problem assets: “substandard,”“doubtful” and “loss.” Substandard assets have one or more defined weaknessesand are characterized by the distinct possibility that the insured institutionwill sustain some loss if the deficiencies are not corrected. Doubtful assetshave the weaknesses of substandard assets with the additional characteristicthat the weaknesses make collection or liquidation in full on the basis ofcurrently existing facts, conditions and values questionable, and there is ahigher possibility of loss. An asset classified loss is considereduncollectible and of such little value that continuance as an asset of theinstitution is not warranted. Another category designated “special mention”also must be established and maintained for assets which do not currentlyexpose an insured institution to a sufficient degree of risk to warrantclassification as substandard, doubtful or loss. Assets classified assubstandard or doubtful require the institution to establish general allowancesfor loan losses. If an asset or portion thereof is

 

10

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classified as loss, theinsured institution must either establish specific allowances for loan lossesin the amount of 100% of the portion of the asset classified loss, orcharge-off such amount. General loss allowances established to cover possiblelosses related to assets classified substandard or doubtful may be included indetermining an institution’s regulatory capital, while specific valuationallowances for loan losses do not qualify as regulatory capital. Federalexaminers may disagree with an insured institution’s classifications andamounts reserved.

 

The Association’s totalclassified assets at December 31, 2002 amounted to $614,000, all of whichwas classified as substandard.  Thelargest classified assets at December 31, 2002 consisted of two mortgageloans on one residential property.  Theaggregate amount of the loans is approximately $182,000.  As of December 31, 2002, the borrower was inChapter 13 bankruptcy and the Association had commenced foreclosureproceedings. ** **In February 2003, the Association foreclosed on the twoloans and now holds the residential property as real estate owned.  The remaining substandard assets consist of(i) seven first mortgage loans secured by residential real estate and varyingin amount from $1,700 to $48,000 and (ii) real estate owned of $35,000.** **TheAssociation’s classified assets as of December 31, 2002 include all of itsnonperforming assets plus $22,000 of delinquent interest.

 

**Allowancefor Loan Losses.**  At December 31, 2002,the Association’s allowance for loan losses amounted to $907,000, or 1.68% ofits total loan portfolio, before net items. The allowance for loan losses is maintained at a level believed, to thebest of management’s knowledge, to cover all known and inherent losses in theportfolio both probable and reasonable to estimate at each reporting date.  The level of allowance for loan losses isbased on management’s periodic review of the collectibility of the loans inlight of historical experience, the nature and volume of the loan portfolio,adverse situations that may affect the borrower’s ability to repay, estimatedvalue of any underlying collateral and prevailing conditions.  The Association is primarily engaged inoriginating single-family residential loans. Due to the Association’s implementation of a strategy to diversify itsloan portfolio into commercial and consumer loans, it reallocated its allowancefor loan losses in 2001.  The managementof the Association considers the deficiencies of all classified loans indetermining the amount of allowance for loan losses required at each reportingdate.  Management analyzes theprobability of the correction of the substandard loans’ weaknesses and theextent of any known or inherent losses that the Association might sustain onthem.  Under this procedure managementreviewed the two substandard mortgage loans on the residential propertyaggregating approximately $182,000 reference above.  It determined that no additional provision was necessary forthose loans as of the reporting dates.

 

While management believesthat it determines the size of the allowance based on the best informationavailable at the time, the allowance will need to be adjusted as circumstanceschange and assumptions are updated. Future adjustments to the allowance couldsignificantly affect net income.

 

The following table setsforth information concerning the allocation of the Association’s allowance forloan losses by loan categories at the dates indicated.  Certain data for the year ended 

 

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December 31, 2001 are derivedfrom the restated financial statements for that year, as described in Note 16to the financial statements.

 
|                 |   | **December 31,**           |   |
|----------------------|--------|----------------------------|--------|
|                 |   | **2002**                   |   | **2001** |   |
|                 |   | **Amount**                 |   | **Percent of********Loans in  Each  Category to Total  Loans** |   | **Amount** |   | **Percent of   Loans in   Each********Category to********Total Loans** |   |
|                 |   | **(Dollars in Thousands)** |   |
|                 |   | **(restated)**             |   |
| Allocated:           |   |                       |   |   |   |   |   |   |   |
| Real  estate loans:  |   |                       |   |   |   |   |   |   |   |
| One-to-four  family  |   | $                          | 417    |   | 68.26 | % | $ | 505 |   | 80.96 | % |
| Commercial           |   | 142                        |   | 10.69 |   | 182 |   | 7.65 |   |
| Construction         |   | 47                         |   | 4.14 |   | 24 |   | 2.61 |   |
| Commercial  business |   | 148                        |   | 10.93 |   | 40 |   | 1.90 |   |
| Consumer  loans      |   | 73                         |   | 5.98 |   | 120 |   | 6.88 |   |
| Other                |   | 80                         |   | — |   | 40 |   | — |   |
| Total                |   | $                          | 907    |   | 100.00 | % | $ | 911 |   | 100.00 | % |

 

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The following table sets forth an analysis ofthe Association’s allowance for loan losses and other ratios at or for thedates indicated.  Certain data for theyear ended December 31, 2001 are derived from the restated financial statementsfor that year, as described in Note 16 to the financial statements.

 

|                                                                   |   | **Year Ended  December 31,** |   |
|------------------------------------------------------------------------|--------|------------------------------|--------|
|                                                                   |   | **2002**                     |   | **2001** |   |
|                                                                   |   | **(Dollars in  Thousands)**  |   |
|                                                                   |   | **(restated)**               |   |
|                                                                   |   |                         |   |   |   |
| Total loans outstanding                                                |   | $                            | 54,143 |   | $ | 42,531 |   |
| Average loans outstanding, net                                         |   | 47,013                       |   | 35,141 |   |
| Balance at beginning of period                                         |   | 911                          |   | 911 |   |
| **Charge-offs:**                                                       |   |                         |   |   |   |
| Real estate loans:                                                     |   |                         |   |   |   |
| One-to four-family                                                     |   | —                       |   | — |   |
| Commercial                                                             |   | —                       |   | — |   |
| Construction                                                           |   | —                       |   | — |   |
| Commercial business                                                    |   | —                       |   | — |   |
| Consumer loans                                                         |   | 4                            |   | — |   |
| Total charge-offs                                                      |   | 4                            |   | — |   |
| **Recoveries:**                                                        |   |                         |   |   |   |
| Real estate loans:                                                     |   |                         |   |   |   |
| One-to four-family                                                     |   | —                       |   | — |   |
| Commercial                                                             |   | —                       |   | — |   |
| Construction                                                           |   | —                       |   | — |   |
| Commercial business                                                    |   | —                       |   | — |   |
| Consumer loans                                                         |   | —                       |   | — |   |
| Total recoveries                                                       |   | —                       |   | — |   |
| Net charge-offs                                                        |   | 4                            |   | — |   |
| Provision for losses on loans                                          |   | —                       |   | — |   |
| Balance at end of period                                               |   | $                            | 907    |   | $ | 911 |   |
| Allowance for loan losses as apercent of total loans outstanding       |   | 1.70                         | %      | 2.16 | % |
| Allowance for loan losses as apercent of total non-performing loans(1) |   | 162.84                       | %      | 216.39 | % |
| Ratio of net charge-offs toaverage loans outstanding, net              |   | .01                          | %      | — | % |

 

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(1)                                  Total non-performing loans consist of totalnonaccruing loans and accruing loans delinquent 90 days or more.

 

**InvestmentSecurities**

 

TheAssociation has authority to invest in various types of securities, includingmortgage-backed securities, U.S. Treasury obligations, securities of variousfederal agencies and of state and municipal governments, certificates ofdeposit at federally insured banks and savings institutions, certain bankers’acceptances and federal funds.  TheAssociation’s investment strategy is established by the board of directors.

 

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The followingtable sets forth information relating to the amortized cost and fair value ofthe Association’s mortgage-backed and other securities.

 
|                          |   | **December  31,**    |   |
|-------------------------------|--------|----------------------|--------|
|                          |   | **2002**             |   | **2001** |   |
|                          |   | **Amortized   Cost** |   | **Fair Value** |   | **Amortized   Cost** |   | **Fair Value** |   |
|                          |   | **(In  Thousands)**  |   |
| Held to maturity:             |   |                 |   |   |   |   |   |   |   |
| U.S. Government and agencies  |   | $                    | 300    |   | $ | 306 |   | $ | 800 |   | $ | 806 |   |
| Mortgage-backed securities    |   | 1,997                |   | 2,092 |   | 2,937 |   | 3,019 |   |
| Available for sale:           |   |                 |   |   |   |   |   |   |   |
| U. S. Government and agencies |   | 996                  |   | 1,040 |   |   |   |   |   |
| Mutual fund                   |   | 4,255                |   | 4,256 |   | 3,634 |   | 3,631 |   |
| Mortgage-backed securities    |   | 11,765               |   | 11,877 |   | 6,560 |   | 6,617 |   |
| FHLMC stock                   |   | 16                   |   | 939 |   | 16 |   | 1,039 |   |
| Total                         |   | $                    | 19,329 |   | $ | 20,510 |   | $ | 13,947 |   | $ | 15,112 |   |

 

The followingtable sets forth the amount of the Association’s mortgage-backed and investmentsecurities which mature during each of the periods indicated and the weightedaverage yields for each range of maturities at December 31, 2002.  The amounts reflect fair value of theAssociation’s securities at December 31, 2002.

 
|                         |   | **Contractually Maturing** |   |
|------------------------------|--------|----------------------------|--------|
|                         |   | **Under 1  Year**          |   | **Weighted  Average  Yield** |   | **1-5 Years** |   | **Weighted  Average  Yield** |   | **6-10 Years** |   | **Weighted  Average  Yield** |   | **Over 10  Years** |   | **Weighted********Average********Yield** |   | **Total** |   |
|                         |   | **(Dollars in Thousands)** |   |
|                         |   |                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| U.S. Government and agencies |   | $                          | — |   | — | % | $ | 1,346 |   | 5.19 | % | $ | — |   | — | % |   |   |   | % | $ | 1,346 |   |
| Mortgage-backed securities   |   | 182                        |   | 5.00 |   | 770 |   | 6.57 |   | 190 |   | 5.52 |   | 12,827 |   | 4.41 |   | 13,969 |   |
| Total                        |   | $                          | 182    |   | 5.00 | % | $ | 2,116 |   | 5.69 | % | $ | 190 |   | 5.52 | % | $ | 12,827 |   | 4.41 | % | $ | 15,315 |   |
|                              |        |                            |        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Mortgage-backedsecurities represent a participation interest in a pool of one- to four-familyor multi-family mortgages. The mortgage originators use intermediaries(generally U.S. Government agencies and government-sponsored enterprises) topool and repackage the participation interests in the form of securities, withinvestors receiving the principal and interest payments on the mortgages. SuchU.S. Government agencies and government-sponsored enterprises guarantee thepayment of principal and interest to investors.

 

Mortgage-backedsecurities are typically issued with stated principal amounts, and the securitiesare backed by pools of mortgages that have loans with interest rates that arewithin a range and have varying maturities. The underlying pool of mortgages, *i.e.*, fixed-rate or adjustable-rate, aswell as prepayment risk, are passed on to the certificate holder. The life of amortgage-backed pass-through security approximates the life of the underlyingmortgages.

 

The mortgage-backed securities of theAssociation consist of Ginnie Mae securities, Freddie Mac securities and FannieMae securities.  Ginnie Mae is agovernment agency within the Department of Housing and Urban Development whichis intended to help finance 

 

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government-assisted housingprograms. Ginnie Mae securities are backed by loans insured by the FederalHousing Administration, or guaranteed by the Veterans Administration.  The timely payment of principal and intereston Ginnie Mae securities is guaranteed by Ginnie Mae and backed by the full faithand credit of the U.S. Government.  FreddieMac is a private corporation chartered by the U.S. Government.  Freddie Mac issues participationcertificates backed principally by conventional mortgage loans.  Freddie Mac guarantees the timely payment ofinterest and the ultimate return of principal on participationcertificates.  Fannie Mae is a privatecorporation chartered by the U.S. Congress with a mandate to establish asecondary market for mortgage loans. Fannie Mae guarantees the timely payment of principal and interest onFannie Mae securities.  Freddie Mac andFannie Mae securities are not backed by the full faith and credit of the U.S.Government, but because Freddie Mac and Fannie Mae are U.S.Government-sponsored enterprises, these securities are considered to be amongthe highest quality investments with minimal credit risks.

 

In addition toinvestments in various types of mortgage-backed securities issued by GinnieMae, Fannie Mae and Freddie Mac, the Association also invests in a mutual fundthat invests primarily in adjustable rate mortgage-backed and mortgage-relatedsecurities issued by those same entities as well as in securities of that typeissued by private companies.  As ofDecember 31, 2002, the Association had a $4.3 million investment in this mutualfund.

 

Mortgage-backedsecurities generally yield less than the loans which underlie such securitiesbecause of their payment guarantees or credit enhancements which offer nominalcredit risk. In addition, mortgage-backed securities are more liquid thanindividual mortgage loans and may be used to collateralize borrowings or otherobligations of the Association.

 

**Sourcesof Funds**

 

**General.**  Deposits are the primary source of theAssociation’s funds for lending and other investment purposes. In addition todeposits, principal and interest payments on loans and investment securitiesare a source of funds. Loan repayments are a relatively stable source of funds,while deposit inflows and outflows are significantly influenced by generalinterest rates and money market conditions. Borrowings may also be used on ashort-term basis to compensate for reductions in the availability of funds fromother sources and on a longer-term basis for general business purposes.

 

**Deposits.**  Deposits are attracted by the Associationprincipally from Webster Parish. Deposit account terms vary, with the principal differences being theminimum balance required, the time periods the funds must remain on deposit andthe interest rate.

 

TheAssociation obtains deposits primarily from residents of Louisiana.  The Association has not solicited depositsfrom outside Louisiana or paid fees to brokers to solicit funds for deposit.

 

Interest ratespaid, maturity terms, service fees and withdrawal penalties are established ona periodic basis. Management determines the rates and terms based on rates paidby competitors, the 

 

15

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need for funds or liquidity,growth goals and federal regulations. The Association attempts to control the flow of deposits by pricing itsaccounts.

 

The followingtable shows the distribution of and certain other information relating to theAssociation’s deposits by type as of the dates indicated.

 
|                       |   | **December  31,**           |   |
|----------------------------|--------|-----------------------------|--------|
|                       |   | **2002**                    |   | **2001** |   |
|                       |   | **Amount**                  |   | **Percent of********Deposits** |   | **Amount** |   | **Percent of********Deposits** |   |
|                       |   | **(Dollars  in Thousands)** |   |
| Transaction accounts:      |   |                        |   |   |   |   |   |   |   |
| Demand deposits            |   | $                           | 8,233  |   | 14.48 | % | $ | 4,560 |   | 9.90 | % |
| Savings deposits           |   | 8,969                       |   | 15.77 |   | 6,367 |   | 13.82 |   |
| Total transaction accounts |   | 17,202                      |   | 30.25 |   | 10,927 |   | 23.72 |   |
| Certificate accounts:      |   |                        |   |   |   |   |   |   |   |
| 0.00% - 3.99%              |   | 33,015                      |   | 58.07 |   | 8,544 |   | 18.55 |   |
| 4.00% - 4.99%              |   | 2,499                       |   | 4.40 |   | 11,459 |   | 24.87 |   |
| 5.00% - 5.99%              |   | 2,931                       |   | 5.15 |   | 10,312 |   | 22.38 |   |
| 6.00% - 6.99%              |   | 1,209                       |   | 2.13 |   | 4,721 |   | 10.25 |   |
| 7.00% - 7.99%              |   | —                      |   | — |   | 107 |   | 0.23 |   |
| Total certificate accounts |   | 39,654                      |   | 69.75 |   | 35,143 |   | 76.28 |   |
| Total deposits             |   | $                           | 56,856 |   | 100.00 | % | $ | 46,070 |   | 100.00 | % |

 

The following table sets forth the depositactivities of the Association during the periods indicated.

 
|                                  |   | **Year Ended  December 31,** |   |
|---------------------------------------|--------|------------------------------|--------|
|                                  |   | **2002**                     |   | **2001** |   |
|                                  |   | **(In  Thousands)**          |   |
| Total deposits at beginning of period |   | $                            | 46,070 |   | $ | 35,945 |   |
| Deposits                              |   | 128,207                      |   | 80,568 |   |
| (Withdrawals)                         |   | 119,079                      |   | 72,280 |   |
| Net deposits (withdrawals)            |   | 9,128                        |   | 8,288 |   |
| Interest credited                     |   | 1,658                        |   | 1,837 |   |
| Total deposits at end of period       |   | $                            | 56,856 |   | $ | 46,070 |   |

 

The following table shows the interest rateand maturity information for the Association’s certificates of deposit atDecember 31, 2002.

 
|              |   | **Maturity  Date**    |   |
|-------------------|--------|-----------------------|--------|
| **Interest Rate** |   | **One Year  or Less** |   | **Over 1-2  Years** |   | **Over 2-3  Years** |   | **Over 3 Years** |   | **Total** |   |
|              |   | **(In  Thousands)**   |   |
| 0.00%  - 3.99%    |   | $                     | 29,704 |   | $ | 3,255 |   | $ | 56 |   | $ | — |   | $ | 33,015 |   |
| 4.00%  - 4.99%    |   | 2,241                 |   | 258 |   |   |   |   |   | 2,499 |   |
| 5.00%  - 5.99%    |   | 2,931                 |   |   |   |   |   |   |   | 2,931 |   |
| 6.00%  - 6.99%    |   | 1,209                 |   |   |   |   |   |   |   | 1,209 |   |
| 7.00%  - 7.99%    |   | —                |   |   |   |   |   |   |   | — |   |
| Total             |   | $                     | 36,085 |   | $ | 3,513 |   | $ | 56 |   | $ |   |   | $ | 39,654 |   |

 

16

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As of December 31, 2002, the aggregate amountof outstanding certificates of deposit at the Association in amounts greaterthan or equal to $100,000, was approximately $8.2 million.  The following table presents the maturity ofthese time certificates of deposit at such dates.

 
|                            |   | **December  31,  2002** |   |
|---------------------------------|--------|-------------------------|--------|
|                            |   | **(In  Thousands)**     |   |
| 3 months or less                |   | $                       | 1,508  |   |
| Over 3 months through 6 months  |   | 2,577                   |   |
| Over 6 months through 12 months |   | 3,773                   |   |
| Over 12 months                  |   | 350                     |   |
|                            |   | $                       | 8,208  |   |

** **

**Borrowings.**  The Association may obtain advances from theFederal Home Loan Bank of Dallas upon the security of the common stock it ownsin that bank and certain of its residential mortgage loans and mortgage-backedand other investment securities, provided certain standards related tocreditworthiness have been met. These advances are made pursuant to severalcredit programs, each of which has its own interest rate and range ofmaturities. Federal Home Loan Bank advances are generally available to meetseasonal and other withdrawals of deposit accounts and to permit increasedlending.

 

As of December 31, 2002, the Association waspermitted to borrow up to an aggregate total of $35.5 million from the FederalHome Loan Bank of Dallas.  TheAssociation had $4.0 million and $3.0 million of Federal Home Loan Bankadvances outstanding at December 31, 2002 and December 31, 2001, respectively.

 

The followingtable shows certain information regarding the short term borrowings of theAssociation at or for the dates indicated:

 
|                                                         |   | **At or for  the Year Ended********December  31,** |   |
|--------------------------------------------------------------|--------|----------------------------------------------------|--------|
|                                                         |   | **2002**                                           |   | **2001** |   |
|                                                         |   | **(Dollars  in Thousands)**                        |   |
| Federal Home Loan Bank advances:                             |   |                                               |   |   |   |
| Average balance outstanding                                  |   | $                                                  | 4,156  |   | $ | 1,640 |   |
| Maximum amount outstanding at anymonth-end during the period |   | 5,000                                              |   | 3,100 |   |
| Balance outstanding at end of period                         |   | 4,000                                              |   | 3,000 |   |
| Average interest rate during the period                      |   | 2.26                                               | %      | 3.94 | % |
| Weighted average interest rate at end of period              |   | 1.94                                               |   | 2.22 |   |
|                                                              |        |                                                    |        |  |  |  |  |

 

17

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**No Subsidiaries**

 

At December31, 2002, the Association had no subsidiaries.

 

**TotalEmployees**

 

TheAssociation had 12 full-time employees and two part-time employees atDecember 31, 2002.  None of theseemployees are represented by a collective bargaining agent, and the Associationbelieves that it enjoys good relations with its personnel.

 

**MarketArea**

 

TheAssociation has one office located in Minden, Louisiana, which is locatedapproximately 31 miles from Shreveport, Louisiana.  The Association’s primary market area consists of Webster Parish,Louisiana and is predominantly rural. The economy in the Association’s primary market area is fairlydiversified, with services, wholesale and retail trade, manufacturing andgovernment constituting the basis of the economy.  The largest employer in Webster Parish is a manufacturer ofconcrete modular facilities.

 

The populationof Webster Parish in 2000 was approximately 42,000.  The population growth rate for Webster Parish has been slightlynegative since 1990.  The projectedpopulation growth rate is less than the projected rates for Louisiana and theUnited States.  Average household incomefor Webster Parish is below Louisiana and national averages.  As of December 31, 2002, the unemploymentrate for Webster Parish was approximately 10.7% as compared to the unemploymentrates of 6.3% and 6.0% for Louisiana and the United States, respectively, as ofthat same date.

 

**Competition**

 

The Association faces significant competitionboth in attracting deposits and in making loans. Its most direct competitionfor deposits has come historically from commercial banks, credit unions andother savings institutions located in its primary market area, including manylarge financial institutions which have greater financial and marketingresources available to them. In addition, the Association faces significantcompetition for investors’ funds from short-term money market securities,mutual funds and other corporate and government securities.  The Association does not rely upon anyindividual group or entity for a material portion of its deposits. The abilityof the Association to attract and retain deposits depends on its ability togenerally provide a rate of return, liquidity and risk comparable to thatoffered by competing investment opportunities.

 

The Association’s competition for real estateloans comes principally from mortgage banking companies, commercial banks,other savings institutions and credit unions. The Association competes for loan originations primarily through theinterest rates and loan fees it charges, and the efficiency and quality ofservices it provides borrowers. Factors which affect competition includegeneral and local economic conditions, current interest rate levels andvolatility in the mortgage 

 

18

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markets. Competition may increase as a result of the continuingreduction of restrictions on the interstate operations of financialinstitutions.

 

**REGULATION**

 

*The following discussion of certain laws andregulations which are applicable to the Company, the Association and the MHC,as well as descriptions of laws and regulations contained elsewhere herein,summarizes the aspects of such laws and regulations which are deemed to bematerial to the Company, the Association and the MHC.  However, the summary does not purport to be complete and isqualified in its entirety by reference to applicable laws and regulations.*

 

**MindenBancorp, Inc.**

 

**Holding Company Acquisitions**.  The Company is a savings and loan holdingcompany within the meaning of the Home Owners’ Loan Act, as amended (“HOLA”),and is  registered with the Office ofThrift Supervision.  Federal lawgenerally prohibits a savings and loan holding company, without prior Office ofThrift Supervision approval, from acquiring the ownership or control of anyother savings institution or savings and loan holding company, or all, orsubstantially all, of the assets or more than 5% of the voting shares thereof. Theseprovisions also prohibit, among other things, any director or officer of asavings and loan holding company, or any individual who owns or controls morethan 25% of the voting shares of such holding company, from acquiring controlof any savings institution not a subsidiary of such savings and loan holdingcompany, unless the acquisition is approved by the Office of ThriftSupervision.

 

The Office of Thrift Supervision may notapprove any acquisition that would result in a multiple savings and loan holdingcompany controlling savings institutions in more than one state, subject to twoexceptions: (i) the approval of interstate supervisory acquisitions by savingsand loan holding companies and (ii) the acquisition of a savings institution inanother state if the laws of the state of the target savings institutionspecifically permit such acquisitions. The states vary in the extent to which they permit interstate savingsand loan holding company acquisitions.

 

**Holding Company Activities.**  The Company operates as a unitary savingsand loan holding company.  Under priorlaw, a unitary savings and loan holding company was not generally restricted asto the types of business activities in which it may engage, provided itcontinued to be a qualified thrift lender. See “ - Minden Building and Loan Association - Qualified Thrift LenderTest.”  The Gramm-Leach-Bliley Act of1999, however, restricts unitary savings and loan holding companies notexisting or applied for before May 4, 1999 to activities permissible forfinancial holding companies under the law or for multiple savings and loanholding companies.  The Company does notqualify for the grandfather-clause exemption and is limited to the activitiespermissible for financial holding companies or multiple savings and loanholding companies.  A financial holdingcompany may engage in activities that are financial in nature, incidental tofinancial activities or complementary to a financial activity.  A multiple savings and loan holding companyis generally limited to activities permissible for bank holding companies underSection 4(c)(8) of the Bank

 

19

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Holding Company Act, subject to the prior approval of the Office ofThrift Supervision, and certain activities authorized by Office of ThriftSupervision regulation.

 

Although savings and loan holding companiesare not subject to specific capital requirements or specific restrictions onthe payment of dividends or other capital distributions, federal regulations doprescribe such restrictions on subsidiary savings institutions, as describedbelow.  The Association must notify theOffice of Thrift Supervision 30 days before declaring any dividend to theCompany.  In addition, the financialimpact of a holding company on its subsidiary institution is a matter that isevaluated by the Office of Thrift Supervision and the agency has authority toorder cessation of activities or divestiture of subsidiaries deemed to pose athreat to the safety and soundness of the institution.  See “- Minden Building and Loan Association- Capital Distributions.”

 

**Restrictions on Transactions With Affiliates**.  Transactions between a savings institutionand its “affiliates” are subject to quantitative and qualitative restrictionsunder Sections 23A and 23B of the Federal Reserve Act and Office of ThriftSupervision regulations.  Affiliates ofa savings institution include, among other entities, the savings institution’sholding company and companies that are controlled by or under common controlwith the savings institution.

 

In general, the extent to which a savingsinstitution or its subsidiaries may engage in certain “covered transactions”with affiliates is limited to an amount equal to 10% of the institution’scapital and surplus, in the case of covered transactions with any oneaffiliate, and to an amount equal to 20% of such capital and surplus, in thecase of covered transactions with all affiliates. In addition, a savingsinstitution and its subsidiaries may engage in covered transactions and certainother transactions only on terms and under circumstances that are substantiallythe same, or at least as favorable to the savings institution or itssubsidiary, as those prevailing at the time for comparable transactions withnonaffiliated companies. A “covered transaction” is defined to include a loanor extension of credit to an affiliate; a purchase of investment securitiesissued by an affiliate; a purchase of assets from an affiliate, with certainexceptions; the acceptance of securities issued by an affiliate as collateralfor a loan or extension of credit to any party; or the issuance of a guarantee,acceptance or letter of credit on behalf of an affiliate.

 

In addition, a savings institution may not:

 

•                                          makea loan or extension of credit to an affiliate unless the affiliate is engagedonly in activities permissible for bank holding companies;

 

•                                          purchaseor invest in securities of an affiliate other than shares of a subsidiary;

 

•                                          purchasea low-quality asset from an affiliate; or

 

•                                          engagein covered transactions and certain other transactions between a savingsinstitution or its subsidiaries and an affiliate except on terms and conditionsthat are consistent with safe and sound banking practices.

 

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With certain exceptions, each loan or extension of credit by a savingsinstitution to an affiliate must be secured by collateral with a market valueranging from 100% to 130% (depending on the type of collateral) of the amountof the loan or extension of credit.

 

Office of Thrift Supervision regulationsgenerally exclude all non-bank and non-savings institution subsidiaries ofsavings institutions from treatment as affiliates, except to the extent thatthe Office of Thrift Supervision or the Federal Reserve Board decides to treatsuch subsidiaries as affiliates. Office of Thrift Supervision regulations alsoprovide that certain classes of savings institutions may be required to givethe Office of Thrift Supervision prior notice of affiliate transactions.

 

**Waivers of Dividends by Minden Mutual HoldingCompany.** Office of Thrift Supervision regulations require the MHC to notify theOffice of Thrift Supervision of any proposed waiver of its receipt of dividendsfrom the Company.  The Office of ThriftSupervision reviews dividend waiver notices on a case-by-case basis, and, ingeneral, does not object to any such waiver if: (i) the mutual holdingcompany’s board of directors determines that such waiver is consistent withsuch directors’ fiduciary duties to the mutual holding company’s members; (ii)for as long as the savings association subsidiary is controlled by the mutualholding company, the dollar amount of dividends waived by the mutual holdingcompany are considered as a restriction to the retained earnings of the savingsassociation, which restriction, if material, is disclosed in the publicfinancial statements of the savings association as a note to the financialstatements; (iii) the amount of any dividend waived by the mutual holdingcompany is available for declaration as a dividend solely to the mutual holdingcompany, and, in accordance with Statement of Financial Accounting StandardsNo. 5, where the savings association determines that the payment of suchdividend to the mutual holding company is probable, an appropriate dollaramount is recorded as a liability; and (iv) the amount of any waived dividendis considered as having been paid by the savings association in evaluating anyproposed dividend under Office of Thrift Supervision capital distributionregulations.  The MHC anticipates thatit will continue to waive dividends paid by the Company.  Under Office of Thrift Supervisionregulations, public stockholders would not be diluted because of any dividendswaived by the MHC (and waived dividends would not be considered in determiningan appropriate exchange ratio) in the event the MHC converts to stock form.

 

**Federal Securities Laws.**  The Company’s common stock is registeredwith the SEC under the Securities Act of 1933 (the “Securities Act”) andSection 12(g) of the Securities Exchange Act of 1934 (the “Exchange Act”).The Company is subject to the proxy and tender offer rules, insider tradingreporting requirements and restrictions, and certain other requirements underthe Exchange Act.  Pursuant to Office ofThrift Supervision regulations and the plan of stock issuance, the Companyagreed to maintain such registration for a minimum of three years following thereorganization in July 2002.

 

The registration under the Securities Act ofthe Company’s common stock does not cover the resale of such shares.  Shares of common stock purchased by personswho are not the Company’s affiliates may be sold without registration.  Shares purchased by the Company’s affiliateswill be 

 

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subject to the resale restrictions of Rule 144 under the SecuritiesAct.  If the Company meets the currentpublic information requirements of Rule 144 under the Securities Act, each ofthe Company’s affiliates who complies with the other conditions of Rule 144would be able to sell in the public market, without registration, a number ofshares not to exceed, in any three-month period, the greater of (a) 1% of theCompany’s outstanding shares or (b) the average weekly volume of trading insuch shares during the preceding four calendar weeks.

 

Sarbanes-Oxley Act of 2002.

 

On July 30, 2002, President George W. Bushsigned into law the Sarbanes-Oxley Act of 2002, which generally establishes acomprehensive framework to modernize and reform the oversight of public companyauditing, improve the quality and transparency of financial reporting by thosecompanies and strengthen the independence of auditors.  Certain of the new legislation’s moresignificant reforms are noted below.

 

•                                          Thenew legislation creates a public company accounting oversight board which isempowered to set auditing, quality control and ethics standards, to inspectregistered public accounting firms, to conduct investigations and to take disciplinaryactions, subject to SEC oversight and review. The new board will be funded by mandatory fees paid by all publiccompanies.  The new legislation alsoimproves the Financial Accounting Standards Board, giving it full financialindependence from the accounting industry.

 

•                                          Thenew legislation strengthens auditor independence from corporate management by,among other things, limiting the scope of consulting services that auditors canoffer their public company audit clients.

 

•                                          Thenew legislation heightens the responsibility of public company directors andsenior managers for the quality of the financial reporting and disclosure madeby their companies.  Among other things,the new legislation provides for a strong public company audit committee that willbe directly responsible for the appointment, compensation and oversight of thework of the public company auditors.

 

•                                          Thenew legislation contains a number of provisions to deter wrongdoing.  CEOs and CFOs will have to certify thatcompany financial statements fairly present the company’s financialcondition.  If a misleading financialstatement later resulted in a restatement, the CEO and CFO must forfeit andreturn to the company any bonus, stock or stock option compensation received inthe twelve months following the misleading financial report.  The new legislation also prohibits anycompany officer or director from attempting to mislead or coerce anauditor.  Among other reforms, the newlegislation empowers the SEC to bar certain persons from serving as officers

 

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or directors of a public company; prohibitsinsider trades during pension fund “blackout periods;” directs the SEC to adoptrules requiring attorneys to report securities law violations; and requiresthat civil penalties imposed by the SEC go into a disgorgement fund to benefitharmed investors.

 

•                                          Thenew legislation imposes a range of new corporate disclosure requirements.  Among other things, the new legislationrequires public companies to report all off-balance-sheet transactions andconflicts, as well as to present any pro forma disclosures in a way that is notmisleading and in accordance with requirements to be established by theSEC.  The new legislation alsoaccelerated the required reporting of insider transactions, which now generallymust be reported by the end of the second business day following a coveredtransaction; requires that annual reports filed with the SEC include astatement by management asserting that it is responsible for creating andmaintaining adequate internal controls and assessing the effectiveness of thosecontrols; and requires companies to disclose whether or not they have adoptedan ethics code for senior financial officers, and, if not, why not, and whetherthe audit committee includes at least one “financial expert,” a term which isto be defined by the SEC in accordance with specified requirements.  The new legislation also requires the SEC,based on certain enumerated factors, to regularly and systematically reviewcorporate filings.

 

•                                          Thenew legislation contains provisions which generally seek to limit and expose topublic view possible conflicts of interest affecting securities analysts.

 

•                                          Finally,the new legislation imposes a range of new criminal penalties for fraud andother wrongful acts, as well as extends the period during which certain typesof lawsuits can be brought against a company or its insiders.

 

**Minden Building and Loan Association**

 

**General.**  As part of the reorganization, the Associationconverted from a Louisiana-chartered mutual building and loan association to aLouisiana-chartered stock building and loan association. The Louisiana Officeof Financial Institutions is the Association’s chartering authority and theOffice of Thrift Supervision is its primary federal regulator.  The Louisiana Office of FinancialInstitutions and the Office of Thrift Supervision have extensive authority overthe operations of Louisiana-chartered savings institutions.  As part of this authority, Louisiana-charteredsavings institutions are required to file periodic reports with the LouisianaOffice of Financial Institutions and the Office of Thrift Supervision and aresubject to periodic examinations by the Louisiana Office of Financial Institutions,the Office of Thrift Supervision and the Federal Deposit Insurance Corporation(“FDIC “).  The Association also issubject to regulation by the FDIC and to requirements established by theFederal Reserve Board.  The investmentand lending authority of savings institutions are prescribed by federal lawsand regulations, and such institutions are prohibited from engaging in anyactivities not permitted by such laws and regulations.  Such 

 

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regulation and supervision is primarily intended for the protection ofdepositors and the Savings Association Insurance Fund (“SAIF”).

 

The Office of Thrift Supervision’senforcement authority over all savings institutions and their holding companiesincludes, among other things, the ability to assess civil money penalties, toissue cease and desist or removal orders and to initiate injunctiveactions.  In general, these enforcementactions may be initiated for violations of laws and regulations and unsafe orunsound practices.  Other actions orinactions may provide the basis for enforcement action, including misleading oruntimely reports filed with the Office of Thrift Supervision.

 

**Insurance of Accounts.**  The deposits of the Association are insuredto the maximum extent permitted by the SAIF, which is administered by the FDIC,and  are backed by the full faith andcredit of the U.S. Government.  Asinsurer, the FDIC is authorized to conduct examinations of, and to requirereporting by, FDIC-insured institutions. It also may prohibit any FDIC-insured institution from engaging in anyactivity the FDIC determines by regulation or order to pose a serious threat tothe FDIC.  The FDIC also has theauthority to initiate enforcement actions against savings institutions, aftergiving the Office of Thrift Supervision an opportunity to take such action.

 

SAIF-insured institutions are assigned to oneof three capital groups which are based solely on the level of an institution’scapital–”well capitalized,” “adequately capitalized,” and“undercapitalized.”  These capitallevels are defined in the same manner as under the prompt corrective actionsystem discussed below.  These threegroups are then divided into three subgroups which reflect varying levels ofsupervisory concern, from those which are considered to be healthy to thosewhich are considered to be of substantial supervisory concern.  Assessment rates for insured institutionsare determined semi-annually by the FDIC and currently range from zero basispoints for the healthiest institutions to 27 basis points for the riskiest.

 

In addition to the assessment for depositinsurance, institutions are required to make payments on bonds issued in thelate 1980s by the Financing Corporation, a federal agency established to recapitalizethe predecessor to the SAIF.  During1999, payments for SAIF members approximated 6.1 basis points, while BankInsurance Fund members paid 1.2 basis points. Since January 1, 2000, there has been equal sharing of FinancingCorporation payments between members of both insurance funds.

 

The FDIC may terminate the deposit insuranceof any insured depository institution, including the Association, if itdetermines after a hearing that the institution has engaged or is engaging inunsafe or unsound practices, is in an unsafe or unsound condition to continueoperations, or has violated any applicable law, regulation, order or anycondition imposed by an agreement with the FDIC.  It also may suspend deposit insurance temporarily during thehearing process for the permanent termination of insurance, if the institutionhas no tangible capital.  If insuranceof accounts is terminated, the accounts at the institution at the time of thetermination, less subsequent withdrawals, shall continue to be insured for a periodof six months to two years, as determined by 

 

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the FDIC.  Management is awareof no existing circumstances which would result in termination of theAssociation’s deposit insurance.

 

**Regulatory Capital Requirements.**  Federally insured savings institutions arerequired to maintain minimum levels of regulatory capital.  The Office of Thrift Supervision hasestablished capital standards applicable to all savings institutions.  These standards generally must be asstringent as the comparable capital requirements imposed on nationalbanks.  The Office of Thrift Supervisionalso is authorized to impose capital requirements in excess of these standardson individual institutions on a case-by-case basis.

 

Current Office of Thrift Supervision capitalstandards require savings institutions to satisfy three different capitalrequirements:

 

•                                          “tangible”capital equal to at least 1.5% of adjusted total assets,

 

•                                          “core”capital equal to at least 3.0% of adjusted total assets, and

 

•                                          “total”capital (a combination of core and “supplementary” capital) equal to at least8.0% of “risk-weighted” assets.

 

Core capital generally consists of commonstockholders’ equity (including retained earnings).  Tangible capital generally equals core capital minus intangibleassets, with only a limited exception for purchased mortgage servicingrights.  The Association had nointangible assets at December 31, 2002. Both core and tangible capital are further reduced by an amount equal toa savings institution’s debt and equity investments in subsidiaries engaged inactivities not permissible to national banks (other than subsidiaries engagedin activities undertaken as agent for customers or in mortgage bankingactivities and subsidiary depository institutions or their holdingcompanies).  These adjustments do notaffect the Association’s regulatory capital.

 

In determining compliance with the risk-basedcapital requirement, a savings institution is allowed to include both corecapital and supplementary capital in its total capital, provided that theamount of supplementary capital included does not exceed the savingsinstitution’s core capital. Supplementary capital generally consists of general allowances for loanlosses up to a maximum of 1.25% of risk-weighted assets, together with certainother items.  In determining therequired amount of risk-based capital, total assets, including certainoff-balance sheet items, are multiplied by a risk weight based on the risksinherent in the type of assets.  Therisk weights range from 0% for cash and securities issued by the U.S.Government or unconditionally backed by the full faith and credit of the U.S.Government to 100% for loans (other than qualifying residential loans weightedat 80%) and repossessed assets.

 

Office of Thrift Supervision rules requirethat an institution with greater than “normal” interest rate risk will besubject to a deduction of its interest rate risk component from total capitalfor purposes of calculating its risk-based capital.  As a result, such an institution will be required to 

 

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maintain additional capital in order to comply with the risk-basedcapital requirement.  An institution hasgreater than “normal” interest rate risk if it would suffer a loss of netportfolio value exceeding 2.0% of the estimated market value of its assets inthe event of a 200 basis point increase or decrease in interest rates.  The interest rate risk component will becalculated, on a quarterly basis, as one-half of the difference between aninstitution’s measured interest rate risk and 2.0% multiplied by the marketvalue of its assets.  The rule alsoauthorizes the Office of Thrift Supervision to waive or defer an institution’sinterest rate risk component on a case-by-case basis.  The final rule was originally effective as of January 1, 1994,subject however to a two quarter “lag” time between the reporting date of thedata used to calculate an institution’s interest rate risk and the effectivedate of each quarter’s interest rate risk component.  However, in October 1994 the Office of Thrift Supervisionindicated that it would waive the capital deductions for institutions withgreater than “normal” risk until the Office of Thrift Supervision published anappeals process.  On August 21, 1995,the Office of Thrift Supervision established (1) an appeals process to handle“requests for adjustments” to the interest rate risk component and (2) aprocess by which “well-capitalized” institutions may obtain authorization touse their own interest rate risk model to determine their interest rate riskcomponent.  The Office of ThriftSupervision also indicated that it would continue to delay the implementationof the capital deduction for interest rate risk pending the testing of theappeals process.

 

Savings institutions must value securitiesavailable for sale at amortized cost for regulatory capital purposes.  This means that in computing regulatorycapital, savings institutions should add back any unrealized losses and deductany unrealized gains, net of income taxes, on debt securities reported as aseparate component of GAAP capital.

 

At December 31, 2002, the Associationexceeded all of its regulatory capital requirements, with tangible, core andtotal risk-based capital ratios of 21.42%, 21.42 % and 42.81%, respectively.

 

Any savings institution that fails any of thecapital requirements is subject to possible enforcement actions by the Officeof Thrift Supervision or the FDIC.  Suchactions could include a capital directive, a cease and desist order, civilmoney penalties, the establishment of restrictions on the institution’soperations, termination of federal deposit insurance and the appointment of aconservator or receiver.  The Office ofThrift Supervision’s capital regulation provides that such actions, throughenforcement proceedings or otherwise, could require one or more of a variety ofcorrective actions.

 

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** **

**Prompt Corrective Action**.  The following table shows the amount ofcapital associated with the different capital categories set forth in theprompt corrective action regulations.

 
| **Capital Category**           |   | **Total********Risk-Based  Capital** |   | **Tier 1********Risk-Based  Capital** |   | **Tier 1********Leverage  Capital** |   |
|--------------------------------|--------|--------------------------------------|--------|---------------------------------------|--------|-------------------------------------|--------|
| Well capitalized               |   | 10%  or more                         |   | 6%  or more                           |   | 5%  or more                         |   |
|                           |   |                                 |   |                                  |   |                                |   |
| Adequately capitalized         |   | 8%  or more                          |   | 4%  or more                           |   | 4%  or more                         |   |
|                           |   |                                 |   |                                  |   |                                |   |
| Undercapitalized               |   | Less  than 8%                        |   | Less  than 4%                         |   | Less  than 4%                       |   |
|                           |   |                                 |   |                                  |   |                                |   |
| Significantly undercapitalized |   | Less  than 6%                        |   | Less  than 3%                         |   | Less  than 3%                       |   |

 

In addition,an institution is “critically undercapitalized” if it has a ratio of tangibleequity to total assets that is equal to or less than 2.0%.  Under specified circumstances, a federalbanking agency may reclassify a well capitalized institution as adequatelycapitalized and may require an adequately capitalized institution or anundercapitalized institution to comply with supervisory actions as if it werein the next lower category (except that the FDIC may not reclassify asignificantly undercapitalized institution as critically undercapitalized).

 

An institutiongenerally must file a written capital restoration plan which meets specifiedrequirements within 45 days of the date that the institution receives notice oris deemed to have notice that it is undercapitalized, significantlyundercapitalized or critically undercapitalized.  A federal banking agency must provide the institution withwritten notice of approval or disapproval within 60 days after receiving a capitalrestoration plan, subject to extensions by the agency.  An institution which is required to submit acapital restoration plan must concurrently submit a performance guaranty byeach company that controls the institution. In addition, undercapitalized institutions are subject to variousregulatory restrictions, and the appropriate federal banking agency also maytake any number of discretionary supervisory actions.

 

At December31, 2002, the Association was deemed a well capitalized institution for purposesof the above regulations and as such is not subject to the above mentionedrestrictions.

 

**Safety and Soundness Guidelines**.  The Office of Thrift Supervision and theother federal banking agencies have established guidelines for safety andsoundness, addressing operational and managerial standards, as well ascompensation matters for insured financial institutions.  Institutions failing to meet these standardsare required to submit compliance plans to their appropriate federalregulators.  The Office of ThriftSupervision and the other agencies have also established guidelines regardingasset quality and earnings standards for insured institutions.  The Association believes that it is incompliance with these guidelines and standards.

 

**Liquidity.**  All savings institutions are required tomaintain a sufficient amount of liquid assets to ensure their safe and soundoperation.

 

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**Capital Distributions**.  Office of Thrift Supervision regulationsgovern capital distributions by savings institutions, which include cashdividends, stock repurchases and other transactions charged to the capitalaccount of a savings institution to make capital distributions.  A savings institution must file anapplication for Office of Thrift Supervision approval of the capitaldistribution if either (1) the total capital distributions for the applicablecalendar year exceed the sum of the institution’s net income for that year todate plus the institution’s retained net income for the preceding two years,(2) the institution would not be at least adequately capitalized following thedistribution, (3) the distribution would violate any applicable statute,regulation, agreement or Office of Thrift Supervision-imposed condition, or (4)the institution is not eligible for expedited treatment of its filings.  If an application is not required to befiled, savings institutions which are a subsidiary of a holding company (aswell as certain other institutions) must still file a notice with the Office ofThrift Supervision at least 30 days before the board of directors declares adividend or approves a capital distribution.

 

**Community Reinvestment Act and the FairLending Laws.** Savings institutions have a responsibility under the CommunityReinvestment Act of 1977 (“CRA”) and related regulations of the Office ofThrift Supervision to help meet the credit needs of their communities,including low- and moderate-income neighborhoods.  In addition, the Equal Credit Opportunity Act and the FairHousing Act (together, the “Fair Lending Laws”) prohibit lenders fromdiscriminating in their lending practices on the basis of characteristicsspecified in those statutes.  Aninstitution’s failure to comply with the provisions of CRA could, at a minimum,result in regulatory restrictions on its activities.  Failure to comply with the Fair Lending Laws could result inenforcement actions by the Office of Thrift Supervision, as well as otherfederal regulatory agencies and the Department of Justice.

 

**Qualified Thrift Lender Test.**  All savings institutions are required tomeet a qualified thrift lender, or QTL, test to avoid certain restrictions ontheir operations.  A savings institutioncan comply with the QTL test by either qualifying as a domestic building andloan association as defined in the Internal Revenue Code or meeting the secondprong of the QTL test set forth in the HOLA, as described below.  A savings institution that does not meet theQTL test must either convert to a bank charter or comply with the followingrestrictions on its operations:

 

•                                          theinstitution may not engage in any new activity or make any new investment,unless such activity or investment is permissible for a national bank;

 

•                                          thebranching powers of the institution shall be restricted to those of a nationalbank;

 

•                                          theinstitution shall not be eligible to obtain any new advances from its FHLB,other than special liquidity advances with the approval of the Office of ThriftSupervision; and

 

•                                          paymentof dividends by the institution shall be subject to the rules regarding paymentof dividends by a national bank.

 

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Upon the expiration of three years from thedate the savings institution ceases to be a QTL, it must cease any activity andnot retain any investment not permissible for a national bank and immediatelyrepay any outstanding FHLB advances (subject to safety and soundnessconsiderations).

 

Currently, the prong of the QTLtest that is not based on the Internal Revenue Code requires that 65% of aninstitution’s “portfolio assets” (as defined) consist of certain housing andconsumer-related assets on a monthly average basis in nine out of every 12months. Assets that qualify without limit for inclusion as part of the 65%requirement include:

 

•                                            loansmade to purchase, refinance, construct, improve or repair domestic residentialhousing;

 

•                                            homeequity loans;

 

•                                            mostmortgage-backed securities;

 

•                                            stockissued by one of the 12 Federal Home Loan Banks; and

 

•                                            director indirect obligations of the FDIC.

 

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In addition, the following assets, amongothers, may be included in meeting the test subject to an overall limit of 20%of the savings institution’s portfolio assets: 50% of residential mortgageloans originated and sold within 90 days of origination; 100% of consumer loans(limited to 10% of total portfolio assets); and stock issued by Freddie Mac orFannie Mae.  Portfolio assets consist oftotal assets minus the sum of (1) goodwill and other intangible assets,(2) property used by the savings institution to conduct its business, and(3) liquid assets up to 20% of the institution’s total assets.  At December 31, 2002, the qualifiedthrift investments of the Association were approximately 78.05% of itsportfolio assets.

** **

**Federal Home Loan Bank System.**  The Association is a member of the FHLB ofDallas, which is one of 12 regional FHLBs that administers the home financingcredit function of savings institutions. Each FHLB serves as a reserve or central bank for its members within itsassigned region.  It is funded primarilyfrom proceeds derived from the sale of consolidated obligations of the FHLBSystem.  It makes loans to members (*i.e*., advances) in accordance withpolicies and procedures established by the Board of Directors of the FHLB.  At December 31, 2002, the Association had$4.0 million of FHLB advances.

 

As a member, the Association isrequired to purchase and maintain stock in the FHLB of Dallas in an amountequal to at least 1% of its aggregate unpaid residential mortgage loans orsimilar obligations at the beginning of each year.  At December 31, 2002, the Association had $472,000 in FHLBstock, which was in compliance with this requirement.

 

The FHLBs are required toprovide funds for the resolution of troubled savings institutions and tocontribute to affordable housing programs through direct loans or interestsubsidies on advances targeted for community investment and low- andmoderate-income housing projects.  Thesecontributions have adversely affected the level of FHLB dividends paid in thepast and could do so in the future. These contributions also could have an adverse effect on the value ofFHLB stock in the future.

 

**Federal Reserve System.**  The Federal Reserve Board requires alldepository institutions to maintain reserves against their transaction accounts(primarily NOW and Super NOW checking accounts) and non-personal timedeposits.  Because required reservesmust be maintained in the form of vault cash or a noninterest-bearing accountat a Federal Reserve Bank, the effect of this reserve requirement is to reducean institution’s earning assets.

 

**Louisiana Regulation.** As a Louisiana-chartered building and loanassociation, the Association also is subject to regulation and supervision bythe Louisiana Office of Financial Institutions.  The Association is required to file periodic reports with and issubject to periodic examinations at least once every four years by theLouisiana Office of Financial Institutions. In addition, the Association is required by Louisiana law andregulations to comply with certain reserve and capital requirements.  At December 31, 2002, the Association was incompliance with all applicable reserve and capital requirements.

 

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Louisiana law and regulations also restrictthe lending and investment authority of Louisiana-chartered savingsinstitutions.  Such laws and regulationsrestrict the amount a Louisiana-chartered building and loan association canlend to any one borrower to an amount which, in the aggregate, does not exceedthe lesser of (i) 10% of the association’s savings deposits or (ii) the sum ofthe association’s paid-in capital, surplus, reserves for losses, and undividedprofits.  Federal regulations, however,impose more restrictive limitations on loans to one borrower.  See “Business - Lending Activities.”  Notwithstanding the foregoing, Louisiana andfederal law permits any such association to lend to any one borrower anaggregate amount of at least $500,000.

 

In addition, Louisiana lawrestricts the ability of Louisiana-chartered building and loan associations toinvest in, among other things, (i) commercial real estate loans (includingcommercial construction real estate loans) up to 40% of total assets; (ii) realestate investments for other than the association’s offices up to 10% of totalassets; (iii) consumer loans, commercial paper and corporate debt securities upto 30% of total assets; (iv) commercial, corporate, business or agriculturalloans up to 10% of total assets; (v) tangible movable property, or leasesthereon, up to 10% of total assets; and (v) capital stock, obligations andother securities of service organizations up to 10% of total assets.  Louisiana law also sets forth maximumloan-to-value ratios with respect to various types of loans.  Applicable federal regulations impose morerestrictive limitations in certain instances. See “Business - Lending Activities.”

 

The investment authority ofLouisiana-chartered building and loan associations is broader in many respectsthan that of federally chartered savings associations.  However, state-chartered savingsassociations, such as the Association, are generally prohibited from acquiringor retaining any equity investment, other than certain investments in servicecorporations, of a type or in an amount that is not permitted for a federallychartered savings association.  Thisprohibition applies to equity investments in real estate, investments in equitysecurities and any other investment or transaction that is in substance anequity investment, even if the transaction is nominally a loan or otherpermissible transaction. At December 31, 2002, the Association was incompliance with such provisions.

 

Furthermore, state-charteredsavings associations may not engage as principal in any activity not permittedfor federal associations unless the FDIC has determined that such activitywould pose no significant risk to the affected deposit insurance fund and theassociation is in compliance with the fully phased-in capital standardsprescribed under federal regulations. When certain activities are permissible for a federal association, thestate association may engage in the activity in a higher amount if the FDIC hasnot determined that such activity would pose a significant risk of loss to theaffected deposit insurance fund and the association meets the fully phased-incapital requirements.  This increasedinvestment authority does not apply to investments in nonresidential realestate loans.  At December 31, 2002, theAssociation had no investments which were affected by the foregoinglimitations.

 

Under Louisiana law, aLouisiana-chartered building and loan association may establish or maintain abranch office anywhere in Louisiana with prior regulatory approval.  In addition, an out-

 

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of-state building and loan association orholding company may acquire a Louisiana-chartered building and loan associationor holding company if the Louisiana Office of Financial Institutions determinesthat the laws of such other state permit a Louisiana-chartered building andloan association or holding company to acquire a building and loan associationor holding company in such other state. Any such acquisition would require the out-of-state entity to apply tothe Louisiana Office of Financial Institutions and receive approval from theLouisiana Office of Financial Institutions.

 

**MindenMutual Holding Company**

 

The MHC is a federal mutualholding company within the meaning of Section 10(o) of the HOLA.  As such, the MHC is registered with andsubject to Office of Thrift Supervision examination and supervision as well ascertain reporting requirements.  In addition,the Office of Thrift Supervision has enforcement authority over the MHC and itsnon-savings bank subsidiaries, if any. Among other things, this authority permits the Office of ThriftSupervision to restrict or prohibit activities that are determined to be aserious risk to the financial safety, soundness or stability of a subsidiarysavings bank.  The MHC is subject to thesame activities limitations to which the Company is subject.  See “ - Minden Bancorp, Inc.”

 

**TAXATION**

 

**FederalTaxation**

 

**General.**  The Company and the Association are subjectto the corporate tax provisions of the Internal Revenue Code, and theAssociation is subject to certain additional provisions which apply to thriftand other types of financial institutions. The following discussion of federal taxation is intended only tosummarize certain pertinent federal income tax matters relevant to the taxationof the Company and the Association and is not a comprehensive discussion of thetax rules applicable to the Company and the Association.

 

**Fiscal Year.**  The Association currently reports its incomeand expenses on the accrual method of accounting and uses a tax year endingDecember 31 for filing its federal income tax returns.

 

**Bad Debt Reserves**.  In August 1997, legislation was enacted thatrepealed the reserve method of accounting (including the percentage of taxableincome method) previously used by many savings institutions to calculate theirbad debt reserve for federal income tax purposes.  Savings institutions with $500 million or less in assets may,however, continue to use the experience method.  The Association must recapture that portion of its reserve whichexceeds the amount that could have been taken under the experience method forpost-1987 tax years. At December 31, 2002, the Association did not haveany post-1987 excess reserves.  Thelegislation also requires savings institutions to account for bad debts forfederal income tax purposes on the same basis as commercial 

 

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banks for tax years beginning after December31, 1995.  This change in accountingmethod and recapture of excess bad debt reserves is adequately provided for inthe Association’s deferred tax liability.

 

At December 31, 2002, thefederal income tax reserves of the Association included $1.5 million for whichno federal income tax has been provided. Because of these federal income tax reserves, the retained earnings ofthe Association are substantially restricted.

 

**Distributions**.  If the Association were to distribute cashor property to its stockholders, and the distribution was treated as being fromits accumulated bad debt reserves, the distribution would cause the Associationto have additional taxable income.  Adistribution is from accumulated bad debt reserves if (a) the reserves exceedthe amount that would have been accumulated on the basis of actual lossexperience, and (b) the distribution is a “non-qualified distribution.”  A distribution with respect to stock is anon-qualified distribution to the extent that, for federal income tax purposes,

 

•                                          itis in redemption of shares,

 

•                                          itis pursuant to a liquidation of the institution, or

 

•                                          inthe case of a current distribution, together with all other such distributionsduring the taxable year, it exceeds the institution’s current and post-1951accumulated earnings and profits.

 

The amount of additional taxable incomecreated by a non-qualified distribution is an amount that when reduced by thetax attributable to it is equal to the amount of the distribution.

 

**Minimum Tax**.  The Internal Revenue Code imposes analternative minimum tax at a rate of 20%. The alternative minimum tax generally applies to a base of regulartaxable income plus certain tax preferences (“alternative minimum taxable income”or “AMTI”) and is payable to the extent such AMTI is in excess of an exemptionamount.  Tax preference items includethe following:

 

•                                          depreciation,and

 

•                                          75%of the excess (if any) of

 

(1)                                  adjustedcurrent earnings as defined in the Internal Revenue Code, over

 

(2)                                  AMTIdetermined without regard to this preference and prior to reduction by netoperating losses.

 

**Capital Gains and CorporateDividends-Received Deduction.**  Corporate net capital  gains are taxed at a maximum rate of35%.  Corporations which own 20% or moreof the stock of a 

 

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a corporation distributing a dividend maydeduct 80% of the dividends received. Corporations which own less than 20% of the stock of a corporationdistributing a dividend may deduct 70% of the dividends received.  However, a corporation that receivesdividends from a member of the same affiliated group of corporations may deduct100% of the dividends received.

 

**Other Matters**.  Federal legislation is introduced from timeto time that would limit the ability of individuals to deduct interest paid onmortgage loans.  Individuals arecurrently not permitted to deduct interest on consumer loans.  Significant increases in tax rates orfurther restrictions on the deductibility of mortgage interest could adverselyaffect the Association.

 

The Association’s federalincome tax returns for the tax years ended 2002, 2001 and 2000 are open underthe statute of limitations and are subject to review by the IRS.  The Association has not been audited by theInternal Revenue Service during the last five years.

 

**StateTaxation**

 

The Company is subject to theLouisiana Corporation Income Tax based on the Company’s Louisiana taxableincome.  The Corporation Income Taxapplies at graduated rates from 4% upon the first $25,000 of Louisiana taxableincome to 8% on all Louisiana taxable income in excess of $200,000.  For these purposes, “Louisiana taxableincome” means net income which is earned by the Company within or derived fromsources within the State of Louisiana, after adjustments permitted underLouisiana law, including a federal income tax deduction.  In addition, the Association is subject tothe Louisiana Shares Tax which is imposed on the assessed value of a company’sstock.  The formula for deriving theassessed value is to calculate 15% of the sum of:

 

(a)                                  20%of the company’s capitalized earnings, plus

 

(b)                                 80%of the company’s taxable stockholders’ equity, minus

 

(c)                                  50% of the company’s real and personalproperty assessment.

 

Various items may also be subtracted in calculating a company’scapitalized earnings.  The Company hasnot received a bill for any tax liability under the Louisiana Shares Tax forthe year ended December 31, 2002.  Anytax liability for that period will be due in 2003.

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**Item 2.Description of Property.**

 

**Properties**

 

At December 31, 2002, the Associationconducted its business from its headquarters office located in Minden,Louisiana.

 

The following table sets forth certaininformation relating to the Association’s offices at December 31, 2002.

 
| **Location**                     |   | **Owned or********Leased** |   | **Lease********Expiration********Date** |   | **Net Book  Value of********Property at********December  31, 2002** |   | **Deposits at********December  31, 2002** |   |
|----------------------------------|--------|----------------------------|--------|-----------------------------------------|--------|---------------------------------------------------------------------|--------|-------------------------------------------|--------|
|                             |   |                       |   |                                    |   | **(In  Thousands)**                                                 |   |
|                             |   |                       |   |                                    |   |                                                                |   |                                      |   |
| 415 Main StreetMinden, Louisiana |   | Owned                      |   | NA                                      |   | $                                                                   | 1,888  |                                      | $      | 56,956 |   |
|                             |   |                       |   |                                    |   |                                                                |   |                                      |   |
| 422 Broadway(1)Minden, Louisiana |   | Owned                      |   | NA                                      |   | $                                                                   | 25     |                                      | NA     |   |
|                                  |        |                            |        |                                         |        |                                                                     |        |                                           |        |  |  |

 

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(1) This site is the Association’s previousoffice building.  It is currently usedby the Association only as a storage facility.

 

**Item3. Legal Proceedings**.

 

The Company and the Associationare not involved in any pending legal proceedings other than nonmaterial legalproceedings occurring in the ordinary course of business.

** **

**Item4. Submission of Matters to a Vote of Security Holders**.

 

Not applicable

 

**PART II**

 

**Item5. Market for Common Equity and Related Stockholder Matters.**

** **

The information required hereinis incorporated by reference from page 3 of the Company’s 2002 Annual Report toStockholders filed as Exhibit 13 hereto (“2002 Annual Report”).

 

**Item6. Management’s Discussion and Analysis or Plan of Operation.**

 

The information required hereinis incorporated by reference from pages 6 to 16 of the 2002 Annual Report.

 

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**Item7. Financial Statements.**

 

The information required hereinis incorporated by reference from pages 17 to 37 of the 2002 Annual Report.

 

**Item8. Changes in and Disagreements With Accountants on Accounting and FinancialDisclosure.**

 

Not applicable

 

**PART III**

 

**Item9. Directors, Executive Officers, Promoters and Control Persons; Compliancewith Section 16(a) of the Exchange Act.**

 

The information required hereinis incorporated by reference from the Company’s Proxy Statement to be filedwithin 120 days from December 31, 2002 (the “Proxy Statement”).

 

**Item10. Executive Compensation.**

 

The information required hereinis incorporated by reference from the Proxy Statement.

 

**Item11. Security Ownership of Certain Beneficial Owners and Management and RelatedStockholder Matters.**

** **

The information required hereinis incorporated by reference from the Proxy Statement.

 

**Item12. Certain Relationships and Related Transactions.**

 

The information required hereinis incorporated by reference from the Proxy Statement.

 

**Item13. Exhibits, List and Reports on Form 8-K.**

 

(a)                                  Thefollowing documents are filed as part of this report and are incorporatedherein by reference from the Company’s 2002 Annual Report:

 

Report of Independent CertifiedPublic Accountants.

 

Consolidated Statements ofFinancial Condition as of December 31, 2002 and 2001.

 

Consolidated Statements ofEarnings for the Years Ended December 31, 2002 and 2001.

 

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Consolidated Statements ofShareholders’ Equity for the Year Ended December 31, 2002 and 2001.

 

Consolidated Statements of CashFlows for the Year Ended December 31, 2002 and 2001.

 

Notes to Consolidated FinancialStatements.

 

The following exhibits arefiled as part of the Form 10-KSB, and this list includes the Exhibit Index:

 
| **No.** |   | **Exhibits**                                                                                                         |
|---------|--------|----------------------------------------------------------------------------------------------------------------------|
| 3.1     |   | Federal Stock Charter of Minden Bancorp, Inc.*                                                                       |
| 3.2     |   | Bylaws of Minden Bancorp, Inc.*                                                                                      |
| 4       |   | Form of Stock Certificate of Minden Bancorp, Inc.*                                                                   |
| 13      |   | Annual Report to Stockholders                                                                                        |
| 21      |   | List of Subsidiaries (See “Item I. Business - No Subsidiaries” in  this Form 10-KSB)                       |
| 99.1    |   | Certification of Chief Executive Officer Pursuant to Section 906 of  the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) |
| 99.2    |   | Certification of Chief Financial Officer Pursuant to Section 906 of  the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) |
|         |        |                                                                                                                      |  |

 

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*                                         Incorporatedherein by reference from the Company’s Registration Statement on Form SB-2filed with the SEC on March 21, 2002 (Registration No. 333-84706).

 

(b)                                 Reportsfiled on Form 8-K.

 

Not Applicable

 

**Item14.  Control and Procedures.**

 

Within 90 days prior to thedate of this annual report, the Company carried out an evaluation, under thesupervision and with the participation of the Company’s management, includingthe Company’s Chief Executive Officer and Chief Financial Officer, of theeffectiveness of the design and operation of the Company’s disclosure controlsand procedures.  Based upon thatevaluation, the Chief Executive Officer and Chief Financial Officer concludedthat the Company’s disclosure controls and procedures are effective.  There were no significant changes in theCompany’s internal controls or in other factors that could significantly affectthese controls subsequent to the date of their evaluation.

 

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Disclosure controls andprocedures are the controls and other procedures of the Company that aredesigned to ensure that the information required to be disclosed by the Companyin its reports filed or submitted under the Securities Exchange Act of 1934, asamended (“Exchange Act”) is recorded, processed, summarized and reported,within the time periods specified in the Securities and Exchange Commission’srules and forms.  Disclosure controlsand procedures include, without limitation, controls and procedures designed toensure that information required to be disclosed by the Company in its reportsfiled under the Exchange Act is accumulated and communicated to the Company’smanagement, including the principal executive officer and principal financialofficer, as appropriate to allow timely decisions regarding requireddisclosure.

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**SIGNATURES**

 

Pursuant to the requirements ofSection 13 or 15(d) of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned,thereunto duly authorized.

 

**MINDEN BANCORP, INC.**

 
|   | By:                                    | /s/  A. David Evans |
|--------|----------------------------------------|---------------------|
|   | A.  David Evans                        |
|   | President  and Chief Executive Officer |

 

Pursuant to the requirements ofthe Securities Exchange Act of 1934, as amended, this report has been signedbelow by the following persons on behalf of the registrant and in thecapacities and on the dates indicated.

** **
| **Name**                |   | **Title**                                        |   | **Date**       |
|-------------------------|--------|--------------------------------------------------|--------|----------------|
|                    |   | Director, President and  Chief Executive Officer |   |           |
| /s/ A. David Evans      |   | (principal  executive  officer)                  |   | March 28, 2003 |
| A. David Evans          |   |                                             |   |
|                    |   |                                             |   |           |
| /s/ Russell A. Adams    |   | Director                                         |   | March 28, 2003 |
| Russell A. Adams        |   |                                             |   |           |
|                    |   |                                             |   |           |
| /s/ John B. Benton, Jr. |   | Director                                         |   | March 28, 2003 |
| John B. Benton, Jr.     |   |                                             |   |           |
|                    |   |                                             |   |           |
| /s/ John P. Collins     |   | Director                                         |   | March 28, 2003 |
| John P. Collins         |   |                                             |   |           |
|                    |   |                                             |   |           |
| /s/ A. Loye Jones       |   | Director                                         |   | March 28, 2003 |
| A. Loye Jones           |   |                                             |   |           |
|                    |   |                                             |   |           |
| /s/ F. Dare Lott, Jr.   |   | Director                                         |   | March 28, 2003 |
| F. Dare Lott, Jr.       |   |                                             |   |           |

 

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| **Name**               |   | **Title**                                                               |   | **Date**       |
|------------------------|--------|-------------------------------------------------------------------------|--------|----------------|
|                   |   |                                                                    |   |           |
| /s/ Michael W. Wise    |   | Director                                                                |   | March 28, 2003 |
| Michael W. Wise        |   |                                                                    |   |           |
|                   |   |                                                                    |   |           |
| /s/ R. E. Woodard, III |   | Director                                                                |   | March 28, 2003 |
| R. E. Woodard, III     |   |                                                                    |   |           |
|                   |   |                                                                    |   |           |
| /s/ Becky T. Harrell   |   | Chief  Financial Officer  (principal financial and  accounting officer) |   | March 28, 2003 |
| Becky T. Harrell       |   |                                                                    |   |

 

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**CERTIFICATIONS**

 

I, A. David Evans, certify that:

 

1.                                       Ihave reviewed this annual report on Form 10-KSB of Minden Bancorp, Inc.:

 

2.                                       Basedon my knowledge, this annual report does not contain any untrue statement of amaterial fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, notmisleading with respect to the period covered by this annual report;

 

3.                                       Basedon my knowledge, the financial statements, and other financial informationincluded in this annual report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant asof, and for, the periods presented in this annual report;

 

4.                                       Theregistrant’s other certifying officers and I are responsible for establishingand maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and we have:

 

a)                                      designedsuch disclosure controls and procedures to ensure that material informationrelating to the registrant, including its consolidated subsidiaries, is madeknown to us by others within those entities, particularly during the period inwhich this annual report is being prepared;

 

b)                                     evaluatedthe effectiveness of the registrant’s disclosure controls and procedures as ofa date within 90 days prior to the filing date of this annual report (the“Evaluation Date”); and

 

c)                                      presentedin this annual report our conclusions about the effectiveness of the disclosurecontrols and procedures based on our evaluation as of the Evaluation Date;

 

5.                                       Theregistrant’s other certifying officers and I have disclosed, based on our mostrecent evaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors (or persons performing the equivalentfunctions):

 

a)                                      allsignificant deficiencies in the design or operation of internal controls whichcould adversely affect the registrant’s ability to record, process, summarizeand report financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

 

b)                                     anyfraud, whether or not material, that involves management or other employees whohave a significant role in the registrant’s internal controls; and

 

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6.                                       Theregistrant’s other certifying officers and I have indicated in this annualreport whether or not there were significant changes in internal controls or inother factors that could significantly affect internal controls subsequent tothe date of our most recent evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses.

 

 
| Date:  March 28, 2003 | By                                    | /s/ A. David Evans |
|----------------------------|---------------------------------------|--------------------|
|                       | A. David Evans                        |
|                       | President and Chief Executive Officer |

 

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I, Becky T. Harrell, certify that:

 

1.                                       Ihave reviewed this annual report on Form 10-KSB of Minden Bancorp, Inc.:

 

2.                                       Basedon my knowledge, this annual report does not contain any untrue statement of amaterial fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, notmisleading with respect to the period covered by this annual report;

 

3.                                       Basedon my knowledge, the financial statements, and other financial informationincluded in this annual report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant asof, and for, the periods presented in this annual report;

 

4.                                       Theregistrant’s other certifying officers and I are responsible for establishingand maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and we have:

 

a)                                      designedsuch disclosure controls and procedures to ensure that material information relatingto the registrant, including its consolidated subsidiaries, is made known to usby others within those entities, particularly during the period in which thisannual report is being prepared;

 

b)                                     evaluatedthe effectiveness of the registrant’s disclosure controls and procedures as ofa date within 90 days prior to the filing date of this annual report (the“Evaluation Date”); and

 

c)                                      presentedin this annual report our conclusions about the effectiveness of the disclosurecontrols and procedures based on our evaluation as of the Evaluation Date;

 

5.                                       Theregistrant’s other certifying officers and I have disclosed, based on our mostrecent evaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors (or persons performing the equivalentfunctions):

 

a)                                      allsignificant deficiencies in the design or operation of internal controls whichcould adversely affect the registrant’s ability to record, process, summarizeand report financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

 

b)                                     anyfraud, whether or not material, that involves management or other employees whohave a significant role in the registrant’s internal controls; and

 

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6.                                       Theregistrant’s other certifying officers and I have indicated in this annualreport whether or not there were significant changes in internal controls or inother factors that could significantly affect internal controls subsequent tothe date of our most recent evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses.

 

 
| Date:  March 28, 2003 | By                                    | /s/ Becky T. Harrell |
|----------------------------|---------------------------------------|----------------------|
|                       | Becky T. Harrell                      |
|                       | Chief Financial Officer and Treasurer |

 

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